mike adams-session 1 fap fks 2013 s.1_fran 101_20_oct13_v.5

October 16, 2013 1

October 16, 2013 2

Session 1Franchising 101 – Building The Strategy

3

Good morning India!Mike AdamsManaging DirectorFranchise Asia Pacific Pty LtdSydney, Australia

• 30yr franchise veteran• Developing brands & people throughout Asia Pacific• CEO/BoD & Asia experience India, SEA & China • Forte for establishing multi-outlet distribution channels• Franchise know-how across multiple industries &

business formats

4

Why India – market drivers• BRIC+2 countries = allegedly 40% world’s growth during next decade

• Phenomena driven by “Emerging Middle Class” which has…– Disposable income -> greater freedom of choice– Desire to live like the West– Changing values / eroding class structures

• India = 1.2B pop & narrower band of wealth spread than some• Colonial heritage left infrastructure, bureaucracy & English language• Largest English speaking nation in the world• More western centric business psyche than China• World’s 4th largest economy

• Allegedly 100M middle class 2009 -> projecting 580M by 2025?• India is potentially the largest BRIC market globally?

6

What is a franchise?An agreement (license) between two parties, where the…

• Franchisor grants the franchisee a license (system) to market a• Product or service, using• Brand / trademark• Operating methods of a proven business format

• In exchange for a recurring payment (royalty)• For a set period of time (term), and • Provides support to the franchisee for…

• Initial start-up• Ongoing

• It is in effect, “leasing” a business!

7

Corporate v. franchise terminology

Franchisor

Master Franchisee

Unit / Sub Franchisee

Head Office

Regional Office

Business Unit / Store

8

For franchisor - why franchise?Why franchise my business…

• Leverage resources – access to capital & other resources for growth• Growth via an outsourced sales & distribution channel• ROI – return on investment• Leverage the franchisee’s local market knowledge domestic & contacts• Entrepreneurial management style - more motivated to maximize sales &

profits than salaried staff • Local knowledge an important source of new marketing & product

concepts

9

Is my business ‘franchisability’?“Franchisability” of your business depends upon…

• Franchisor credibility • Market / product differentiation • Knowledge transferability • Market adaptability • Proven / successful prototype• Documented systems • Franchise affordability • Franchise ROI • Market conditions & trends• Franchisor capital availability • Stakeholder relationship commitment• Strength of management team

10

When to franchise?When & only when, you have developed….

• Market scalability & scope research• Proven & durable business format• Stand-a-lone (clone-able) business• Systematized the business• Documented business processes• Company track record

11

Franchisor advantages The franchisor gets easier access to capital for rapid growth The franchisor leverages the franchisee’s knowledge of the

domestic market & regulations Franchisees are far more motivated to maximize sales and

profits than salaried branch managers. Franchisees are an important source of new marketing and

product concepts

13

Sourcing franchisees• Greenfield franchisee start-up• Sell company outlets• Competitor conversion• Franchisee selection criteria & process• You “grant” a franchise, not sell

14

Franchisee advantages

• Proven business model - increased chances of business success• Independence to operate business - in business for yourself, but not

by yourself• Established brand recognition & acceptance • Access to pre-sold customer base which can take years to establish• Established methods & quality - proven product, service & methods• Access to bulk purchasing• Consumer branding attraction for quality & consistency • Pre-opening support…

• site selection, design / construction, training, grand-opening program

• Ongoing support…• Training, advertising, operating procedures & assistance, ongoing support

15

Franchisee’s disadvantages• Lack of independence – in business for yourself, but not by yourself• Must operate according to procedures & restrictions set by franchisor• Include products or services offered, pricing & territory. • Initial franchise fee (goodwill), plus ongoing royalties & advertising

contributions• Must balance restrictions & support with own ability / skills• Damaged, system-wide image can result if other franchisees

performing poorly, or franchisor runs into problems• Limited tenure & franchisee may have little or no say about

termination or renewal terms

16

Franchisee start-up costs• Start-up costs / initial investment - CAPEX

• Initial franchise fee (goodwill)• Leasehold improvements• Fixtures & fittings • Plant & equipment• COGS Inventory (product)• Various utilities, deposits, advisor fees, etc• Working capital (through to break-even)

• Ongoing operating P&L expenditure – OPEX

19

Franchising killers!• Corporate mentality staff • Franchisee’s don’t require support• Business can survive on royalty alone• Store selection criteria• Franchisee selection criteria• Unproven business format

20

Constraints franchising faces in India• Lack of franchisor vision

– Franchisor executive themselves– Ability to credibly impart the vision to franchisees

• Lack of systems & process – Ops manual is malleable & legal extension of franchise agreement

• Skills & experience within franchisor team– Hiring wrong people / not hiring the company’s needs

• You “grant” a franchise – not sell– Signing up anyone with a “heartbeat & cheque book” – Lack franchisee & location selection criteria & process– Too eager to grow the channel at expense of the network

#1 Fix: Gov’t legislation for Prior Disclosure?

21

Franchise Knowledge Series International Workshop on Franchising & Business Growth

20 October, 2013